A friend of mine who knows that 360 does work with financial advisory firms told me he had read a study recently that showed that fewer than half of Americans trust the financial advisory industry, and he wanted to know what I thought about the findings.
Frankly, the low number didn’t surprise me. I understand that questions about the practices and ethics of the financial services industry in general, and the big banks and Wall Street in particular, have cast a shadow over all participants, advisors included, since at least 2008. And I recognize that among the thousands upon thousands of financial advisors in America, there are occasional rogue players who have, in the words of Mark Tibergien, head of Pershing Advisor Solutions, inflicted reputational damage with the investing public, dissuaded young people from entering the profession and increased government regulation and compliance costs. (See Madoff, Bernie for amplification.)
Despite all this, my personal experience with advisors suggests a different story. I believe that by and large, they share certain characteristics that are actually quite positive and commendable:
- They are intricately and intimately focused on the financial and personal well-being of their clients.
- The concept of fiduciary responsibility is deeply ingrained in them (i.e., Madoff was an aberration, not the norm).
- They operate with integrity.
- They are almost always driven by a long-term orientation and, in that way, are precisely the opposite of short-term traders.
- They are typically motivated by strong values like commitment to their community.
Was I just being naive?
After the conversation I had with my friend, I considered why my personal point of view differs so markedly from those who say they lack trust in financial advisors.
The new DOL Fiduciary Rule notwithstanding (and who knows if it’s even going to be put into practice), there’s no doubt the issue of trust is a hot button.
A 2015 study by the CFA Institute and Edelman, the PR firm, sought to determine, among other things, what led affluent investors to select a wealth management provider. Interestingly, while 17% said it was their ability to achieve high returns and another 17% said it was their commitment to ethical conduct, more than double that number – 35% – said trust was the #1 determinant. Net, net – did they trust the provider to act in their best interests?
Similarly, State Street Global Advisors, quoting experts from Wharton, said that when it comes to selecting a manager, “the advisor the client chooses is frequently the one the client feels she can trust the most.”
They went on to cite three levels of trust they said an advisor needs to satisfy:
- Trust in their technical competence – Does the advisor know what he or she is doing?
- Trust in their ethical conduct and character – Can clients trust the advisor “not to steal their money?” (That’s not my language, by the way. It’s the experts from Wharton.)
- Trust in their empathetic skills and maturity – If clients tell their advisor personal things about themselves, can they trust that the advisor will be discrete about it?
Of course it comes down to money.
The subject of money is one in which bias and prejudice can often override rational discourse. I don’t think I’m going out on a limb when I say that money can end friendships, strain marriages, disincentivize children and cause no end of grief generally.
Since the stock and trade of financial advisors is other people’s money, it’s not surprising that issues can get raised and tempers can occasionally flare.
Still, I wonder if the people who disparage financial advisors have actually ever worked with any.
If fewer than 50% of Americans said they doubted the investment performance of financial advisors could match the performance of popular indexes, I’d say they might well be right about that.
But not trusting advisors? Speaking personally, I reject that.